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WAEC Financial Accounting 2005 Question 50

Question 50

Depreciation

Where there is a loss on disposal of a fixed asset, it means

  1. A.depreciation has been underestimated
  2. B.depreciation has been overestimated
  3. C.scrap value has not been estimated
  4. D.depreciation method used is inappropriate.
Show the answer and explanation

Answer: A (depreciation has been underestimated)

Explanation

A loss means book value was higher than the sale price, so too little depreciation had been charged.